John Penrose, a Conservative MP and former minister who has led calls for a price cap, said Ofgem’s plans were a ‘stitch-up’ by the big six suppliers. Photograph: Andrew Milligan/PA
Labour has accused the government of betraying millions of households after the energy regulator published proposals to extend a price cap for vulnerable customers that fell well short of the Conservatives’ election promises.
Theresa May had pledged a price cap on energy bills for 17m families during the general election campaign, but the policy was missing from the Queen’s speech.
Instead, the business secretary, Greg Clark, wrote to the energy regulator asking it to safeguard “customers on the poorest value tariffs”.
In response, Ofgem said on Monday that it would hold a summit in July to consider what form of “safeguard tariff” would be best, with one option being to extend an existing cap for the 4m households on prepayment meters to a further 2.6m vulnerable households who receive the warm home discount.
Alan Whitehead, the shadow energy minister, asked Clark during an urgent question in the Commons whether he accepted that Ofgem’s response “falls far short” of May’s promise. Whitehead said 17m households “will now feel completely betrayed by this policy U-turn”.
Clark said he was prepared to legislate if the final proposals did not go far enough to address consumers paying over the odds.
John Penrose, a Conservative MP who has led calls for a cap, said the plans were a “stitch-up” by the big six suppliers and urged parliament to legislate.
“Ofgem’s proposals will not end the energy rip-off for 17m families, as we promised in our manifesto. Under this plan, fewer than 3 million customers will be helped and the remaining 14 million will see their energy bills rise as energy companies recoup the cost of the cap by milking the rest of us,” said the former minister in a statement.
The initial plans appear to be a long way from the prime minister’s promise of a cap saving 17m families £100 each, and are confirmation that the government has bowed to industry lobbying. The share price of British Gas’s owner, Centrica, climbed 1.75% after the announcement, and SSE’s rose by nearly 1%.
“What is increasingly clear to us is it that an industry-wide price cap for energy bills is unlikely,” said analysts at Jefferies bank.
No 10 gave a lukewarm response to the Ofgem proposal but stopped short of repeating the pledge to legislate to protect 17m families with a price cap. “Ofgem’s response is a step in the right direction,” May’s official spokesman said. “We’ve said we need a better energy market and are committed to extending price protection currently in place to some vulnerable energy consumers to more people on the poorest-value tariffs.”
He continued: “We are not ruling anything out, whether that is action by the regulator or legislation.”
Ofgem also said it would push forward with reforms recommended by the competition watchdog, including the energy regulator’s own streamlined switching site and forcing firms to tell their customers if another supplier has a cheaper deal.
The regulator is also proceeding with a potentially controversial plan to make comparison sites hide tariffs that they cannot switch customers to immediately and earn commission from. Shoppers will instead have to click a button to show all deals, though sites will have to ensure visitors know they are only receiving a partial view of the market.
New data from the regulator shows that British Gas, EDF, E.ON, Npower and Scottish Power have increased the profit margin they make on billpayers from 3.7% on average in the 2015-16 financial year to 4% in 2016-17.
Ofgem also published figures revealing that, while the costs faced by suppliers in May were up 15% on the same time the year before, they had fallen 6% between February and May. In that same period, five of the six big suppliers increased their prices for customers, some by as much as 10%.
Dermot Nolan, the energy regulator’s chief executive, wrote in a letter to Clark: “Ofgem shares your concern that the market is not working well for all consumers, particularly those who do not regularly switch energy supplier.”
Consumer groups welcomed the prospect of the prepayment cap being widened.
Gillian Guy, the chief executive of Citizens Advice, said: “We have been calling for the prepayment meter cap to be extended to all those eligible for the warm home discount for years and the regulator’s announcement today paves the way for protecting as many as 2.6 million more who can least afford rising energy bills.”
However, Which? said that while more protections and easier switching were good, “people will question whether these interventions are enough to deliver an energy market that finally works for all consumers”.
Price comparison sites, which had strongly lobbied against an absolute price cap, were pleased by the announcement.
Ofgem said it would also help protect vulnerable households by capping the costs for people having a prepayment meter fitted under court orders at £150. Such charges can reach £1,000 under the current regime.
Another planned measure is a simplified switching service for people who have been on the worst-value default tariffs – known as standard variable tariffs (SVTs) – for more than three years. The regulator will automatically provide a customer’s gas and electricity consumption data for them, to make the process easier.
Figures released by Ofgem show that 65% of people are still on an SVT, down fractionally from the 66% when the data was first published last December.